SpaceX (SPCX) made a stunning reversal after insider lock-up expirations were not as bearish as expected. All of this may culminate in something similar for Tesla (TSLA), as TSLA stock has been through a similar fall.
That said, Tesla is not SpaceX, and the company does not have the ingredients for a multi-trillion move to either side. Still, you only need the bullishness to partially spill over into TSLA stock for it to start performing again.
It's worth looking at whether you should buy TSLA stock near its 52-week lows. It is down ~34% from its peak. A year ago, the stock was in a similar position and ended up soaring to an all-time high (up 40-45%) by year-end. A repeat is more likely than not if the broader market cooperates.
Why Tesla Declined So Much
Tesla's Q2 earnings report beat estimates on the top line by $2.69 billion, with $28.24 billion in sales, up 26%. Earnings didn't do so well, and EPS of $0.33 missed expectations of $0.49.
This collapse was largely expected due to Tesla's aggressive vehicle price cuts and low-interest financing promotions. Capex also rose due to AI compute infrastructure and robotics research/manufacturing.
Investors are not happy because even if you exclude AI costs, margins shouldn't be this low. It signals to them that Tesla might have to make sacrifices on its bottom line if it is to grow healthily.
How It Could Still Bounce Back
A "dream" scenario for Tesla might be a merger with SpaceX. Tesla will likely be acquired in a stock-for-stock transaction, but it's fair to assume that SpaceX will overpay compared to the headline market cap. Both of these companies could make up an enormous amount of index funds.
There has been a tendency among Elon Musk's companies to slowly coalesce into one. SpaceX and Tesla are major partners, and it makes sense to bring both of these companies together. Even that prospect alone will add some value to Tesla if SpaceX continues rallying.
The second (and probably the most unlikely) scenario would be a breakthrough in Optimus robots. I do not see one coming this year, but it's likely that Tesla will make progress on the robotics front within the next decade. You don't have to be significantly profitable in the AI space to get a massive valuation boost.
Should You Buy TSLA Stock Here?
You're buying a margin trough into a capex peak, and you're essentially betting that the market re-rates the spend as an asset rather than a burn. Tesla is not SpaceX, so it's not fair to assume that this is a company that will lift off in the other's tailwinds. What you can expect is a more muted upside to perhaps the $400 range if analysts stay bullish and Musk does not disappoint on margin in the next quarter. Analysts have their gaze right on that level.
You should keep in mind again that Tesla is unlikely to "manufacture" profit like SpaceX has done. SpaceX's AI spending went into something that turned out profitable at the right time. SpaceX's division xAI built AI infrastructure that is now being sold to AI companies at an annualized run rate of about $27.8 billion. The operating margin on that is likely close to 95% in the short term. Tesla cannot rent data centers out, and Elon Musk would've long done it if it were possible.
Regardless, I still think it is not a bad idea to take a small entry position if you don't have exposure. If you already do, I wouldn't add more, as another earnings miss could take TSLA stock below $300.
On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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